Cambridge International AS and A Level Economics: Microeconomic intervention (9708) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover section 3.2 (outcomes 3.2.1 to 3.2.6) of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. This is AS Level content, assumed knowledge for A Level Papers 3 and 4. The markets are fictional, and all prices are in cu, short for currency units. Read the study guide and the revision notes first. The course hub and checklist show the rest of the syllabus.

Questions

1. Define a specific indirect tax and explain what is meant by the incidence of a tax. [3]

2. In a market for bicycle helmets, demand is Qd = 240 − 8P and supply is Qs = −80 + 24P, where P is in cu. The government imposes a specific tax of 4 cu per helmet.

(a) Find the equilibrium price and quantity with no tax. [2] (b) Calculate the new price paid by consumers and the new quantity. [2] (c) Calculate the burden of the tax on consumers and on producers. [2] (d) Using elasticity values at the original equilibrium, explain why consumers bear the larger share. [2]

3. Explain how a specific tax could correct the over-consumption of a good that causes a negative externality. [4]

4. In a market for evening courses, demand is Qd = 300 − 10P and supply is Qs = −100 + 10P. The government gives producers a subsidy of 6 cu per place.

(a) Calculate the original equilibrium price. [1] (b) Calculate the new price paid by students and the new quantity. [2] (c) Calculate the price producers receive and the total cost to the government. [2] (d) State which group gains more and why. [1]

5. Explain two disadvantages of using a subsidy to increase consumption of a merit good. [4]

6. In a market for flats, demand is Qd = 500 − 25P and supply is Qs = −100 + 25P. The government sets a maximum rent of 8 cu.

(a) Calculate the equilibrium rent and quantity. [1] (b) Calculate the size of the shortage. [2] (c) Calculate the rent tenants would be willing to pay for the number of flats actually available. [1] (d) Explain one consequence of the gap between your answers to (c) and the maximum rent. [2]

7. In a market for rice, demand is Qd = 900 − 30P and supply is Qs = −100 + 20P. The government sets a minimum price of 26 cu.

(a) Calculate the equilibrium price and quantity. [1] (b) Calculate the quantity demanded, quantity supplied and the surplus at 26 cu. [2] (c) Calculate the cost of the government buying the whole surplus at 26 cu. [1] (d) Calculate the change in consumer spending, assuming consumers buy only what they demand. [2] (e) State one drawback of this policy. [1]

8. In a market for barley, demand is Qd = 1,500 − 5P. Supply is fixed within each year at 750 in a poor harvest, 900 in a normal harvest and 1,050 in a good harvest. A buffer stock agency sets a floor price of 105 cu and a ceiling price of 135 cu.

(a) Calculate the free-market price in each type of harvest. [2] (b) Calculate how much the agency buys, and how much it spends, in a good harvest. [2] (c) Calculate how much it sells, and how much it receives, in a poor harvest. [2] (d) The agency enters a good year, then two poor years in a row. Explain what happens to the price in the second poor year. [2]

9. A town council runs a free health clinic at a yearly cost of 600,000 cu. It treats 12,000 patients.

(a) Calculate the cost per patient. [1] (b) Explain the opportunity cost of this provision. [2] (c) Explain why free provision may lead to over-use. [2]

10. Out of 25,000 adults in a district, 5,500 smoke. A warning campaign costing 30,000 cu is followed by a fall to 4,500 smokers.

(a) Calculate the percentage change in the number of smokers. [2] (b) Calculate the change in the smoking rate in percentage points. [1] (c) Calculate the cost per person who stopped. [1] (d) State one limitation of using information alone. [1]

11. The demand for a demerit good has a price elasticity of −0.4. The government imposes a specific tax which raises the price paid by consumers by 20%. Evaluate the effectiveness of the tax in reducing consumption of the good. [10]

Answers

1. A specific tax is a fixed amount per unit sold [1]. Incidence is the way the burden is shared between consumers and producers [1], which may differ from who pays the tax to the government [1]. [3] Examiner insight: A definition is stronger when it says “per unit” and explains why incidence can differ from the legal payer.

2. (a) 240 − 8P = −80 + 24P, so 32P = 320 [1]. P = 10 cu and Q = 160 [1]. [2] (b) New supply Qs = −80 + 24(P − 4). Then 240 − 8P = −176 + 24P, so P = 13 [1]. P = 13 cu, Q = 240 − 104 = 136 [1]. [2] (c) Consumers pay 3 more: 3 × 136 = 408 cu [1]. Producers keep 9, which is 1 less: 1 × 136 = 136 cu [1]. Total revenue 544 cu. [2] (d) PED = −8 × 10 ÷ 160 = −0.5 and PES = 24 × 10 ÷ 160 = 1.5 [1]. Demand is less elastic than supply, so buyers are less able to cut back and bear more of the tax [1]. [2] Examiner insight: Show how the supply equation changes (P − 4). Showing the working lets a slip be seen and judged fairly.

3. A negative externality means the cost to society exceeds the producer’s private cost [1], so the free market produces too much [1]. A tax equal to the marginal external cost shifts supply upwards to the marginal social cost [1], reducing quantity towards the social optimum [1]. [4] Examiner insight: Say that the tax shifts supply, not demand. A limitation, such as difficulty in valuing the externality, can extend the answer.

4. (a) 300 − 10P = −100 + 10P, so P = 20 cu [1]. [1] (b) New supply Qs = −100 + 10(P + 6). Then 300 − 10P = −40 + 10P, so 20P = 340 [1]. P = 17 cu, Q = 300 − 170 = 130 [1]. [2] (c) Producers receive 17 + 6 = 23 cu [1]. Cost = 6 × 130 = 780 cu [1]. [2] (d) Neither: each gains 3 × 130 = 390 cu, because the demand and supply slopes are equal [1]. [1] Examiner insight: Subsidy questions often ask for the price producers receive as well. Do not stop at the price consumers pay.

5. Two developed points. The subsidy has an opportunity cost, since the government must raise taxes or cut other spending [1], so the money could be used on something with a higher return [1]. The benefit is hard to measure, so the subsidy may be set too high or too low [1], leaving consumption above or below the best level [1]. Producers keeping part of it as profit is another valid point. [4] Examiner insight: A named disadvantage with no consequence is weaker than a developed one. Show the chain from cause to effect.

6. (a) 500 − 25P = −100 + 25P, so P = 12 cu, Q = 200 [1]. [1] (b) At 8: Qd = 500 − 200 = 300 and Qs = −100 + 200 = 100 [1]. Shortage = 200 [1]. [2] (c) At 100 flats, price = (500 − 100) ÷ 25 = 16 cu [1]. [1] (d) Tenants would pay up to 16 but the cap is 8 [1], inviting an illegal market or side payments [1]. [2] Examiner insight: Tie the consequence to the numbers, such as the gap between 8 and 16.

7. (a) 900 − 30P = −100 + 20P, so P = 20 cu, Q = 300 [1]. [1] (b) At 26: Qd = 900 − 780 = 120 and Qs = −100 + 520 = 420 [1]. Surplus = 300 [1]. [2] (c) 300 × 26 = 7,800 cu [1]. [1] (d) Before: 20 × 300 = 6,000 cu. After: 26 × 120 = 3,120 cu [1]. Change = −2,880 cu [1]. [2] (e) Any one: cost to taxpayers, storage waste, over-allocation to rice, or higher prices [1]. [1] Examiner insight: Consumer spending at the minimum price uses the quantity demanded, not the quantity supplied.

8. (a) Poor: (1,500 − 750) ÷ 5 = 150. Normal: (1,500 − 900) ÷ 5 = 120 [1]. Good: (1,500 − 1,050) ÷ 5 = 90 [1]. [2] (b) At 105, Qd = 1,500 − 525 = 975 [1]. Buys 1,050 − 975 = 75, spending 75 × 105 = 7,875 cu [1]. [2] (c) At 135, Qd = 1,500 − 675 = 825 [1]. Sells 825 − 750 = 75, receiving 75 × 135 = 10,125 cu [1]. [2] (d) Stock after the good year is 75. The first poor year uses all of it [1]. In the second poor year there is none left, so the price rises to 150 cu, which is 15 above the ceiling [1]. [2] Examiner insight: Link the price result to the exhausted stock.

9. (a) 600,000 ÷ 12,000 = 50 cu [1]. [1] (b) Opportunity cost is the next best use of the 600,000 cu [1], such as spending it on schools or roads, which would then not be provided [1]. [2] (c) At zero price people use it until their own marginal benefit is zero [1], which may exceed the level where marginal social benefit equals marginal cost, causing waste or queues [1]. [2] Examiner insight: Name a specific alternative use in an opportunity cost answer.

10. (a) (4,500 − 5,500) ÷ 5,500 × 100 [1] = −18.2% [1]. [2] (b) 5,500 ÷ 25,000 = 22%. 4,500 ÷ 25,000 = 18%. Change = −4 percentage points [1]. [1] (c) 30,000 ÷ 1,000 = 30 cu [1]. [1] (d) Any one: slow effect, addiction overriding the message, the message being ignored, or other causes of the fall [1]. [1] Examiner insight: Label percentage change and percentage points separately, since they are different measures.

11. Calculation: a 20% rise in price with PED of −0.4 gives a fall in quantity of 0.4 × 20 = 8% [1]. Demand is inelastic, so buyers cut quantity proportionally less than the price increase [1]. The tax therefore only dents consumption [1], though it raises revenue because most buyers stay [1]. That revenue could fund treatment or information campaigns [1]. The tax is regressive if low-income households spend a larger share on the good [1]. Some buyers may turn to illegal supply [1]. Demand may become more elastic over time [1]. Information or regulation could add to the tax [1]. Judgement: limited effect on quantity but useful revenue, so a larger effect needs a bigger rise or other policies [1]. [10] Examiner insight: Do the arithmetic first, then use it as evidence. End with a judgement on effectiveness and the reason for it.

Where marks are usually lost

• Shifting demand instead of supply when drawing or describing a tax or subsidy.
• Reporting the new price but not splitting it into consumer and producer shares.
• Using the wrong base for percentage changes.
• Confusing a shortage with a surplus, or a ceiling with a floor.
• Describing an effect for a price control set on the wrong side of equilibrium.
• Forgetting to multiply by quantity when asked for revenue, cost or burden.
• Listing evaluation points without a judgement.

Next steps

• Review the revision notes and the study guide.
• Return to the course hub and the printable checklist.
• Try the government intervention practice set for the reasons for intervention.
• Take one of the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge International AS & A Level Economics (9708), syllabus for examination in 2026, 2027 and 2028, published by Cambridge International, topic 3, section 3.2.